Tuesday 27 May 2014

Whether an agreement which was valid till coming into force of competition Act will remain valid after said Act coming into force?

Hon’ble Mr. Justice V.S. Sirpurkar
Hon’ble Shri Rahul Sarin
Hon’ble Mrs. Pravin Tripathi
APPEAL No.20 OF 2011
[Under Section 53B of the Competition Act, 2002 against the order dated 12.08.2011
passed by the Competition Commission of India in Case No. 19/2010]
In the matter of :
M/s. DLF Limited,
DLF Centre, Sansad Marg,
New Delhi – 110 001.
... Appellant
1. Competition Commission of India,
  Hindustan Times House,
 18-20, Kasturba Gandhi Marg,

Read original judgment here;https://drive.google.com/file/d/0B5vWGtQ14k1BM1Fjb1V6T3Jyam8/edit?usp=sharing

In paragraph 8 of its judgment the High Court observed as under :-
“The agreement prior to coming into force of the new Act was,
therefore, certainly valid, for it was not in breach of any law or
affected any law then existing. The question here is whether
this agreement, which was valid until coming into force of the
Act, would continue to be so valid even after the operation of
the law. The parties as on today certainly propose to act upon

that agreement.
All acts done in pursuance of the
agreement before the Act came into force would be
valid and cannot be questioned. But if the parties want

agreement, which are now prohibited by law, would
certainly be an illegality and such an agreement by its
nature, therefore, would, from that time, be opposed to
the public policy. We would say that the Act could have
been treated as operating retrospectively, had the act
rendered the agreement void ab initio and would render
anything done pursuant to it as invalid. The Act does
not say so. It is because the parties still want to act
upon the agreement even after coming into force of the
Act that difficulty arises. If the parties treat the agreement
as still continuing and subsisting even after coming into force of
the Act, which prohibits an agreement of such nature, such an
agreement cannot be said to be valid from the date of
the coming into force of the Act. If the law cannot be
applied to the existing agreement, the very purpose of
the implementation of the public policy would be
defeated. Any and every person may set up an agreement
said to be entered into prior to the coming into force of the Act
and then claim immunity from the application of the Act. Such

thing would be absurd, illogical and illegal. The moment the Act
comes into force, it brings into its sweep all existing
agreements. This can be explained further by quoting the
following example:" A and B enter into agreement of sale of
land on 2/1/2008. It is agreed between them that sale-deed
would be executed on or before 2/1/2009. Meanwhile, i.e. on
10/8/2008, the Government decides to impose a ban on
transfer of the land and declares that any such transfer, if
effected, shall be void. The question is, could the parties say
that since their agreement being prior to Government putting a
ban on transfer, their case is not covered by the ban? The
answer has to be in the negative, as on the day the contract is
sought to be completed, it is prohibited." Similar would be the
result in the instant case.”
It is on this reasoning that the Bombay High Court mainly dealt with
the issue. A further reference was made in paragraph 9 by the Bombay
High Court to a reported judgment of the Hon’ble Supreme Court in R.
Rajagopal Reddy V. Padmini Chandrasekharan, (1995) 2 SCC 630
wherein the Hon’ble Supreme Court held that the transactions prior to the
promulgation of Benami Transactions (Prohibition) Act, 1988 (hereinafter
“Benami Act”) were valid and the Act did not specifically rendered them
void. The Hon’ble Supreme Court also held therein that the Benami Act
prohibited the benami transaction as and from the date of the

commencement of the Benami Act.
It not only prohibited the benami
transaction in present, but also prohibited a real owner from instituting a
suit after coming into force of the Benami Act, claiming a declaration that
he was the real owner of the property. Therefore, the Hon’ble Supreme
Court held that the suits instituted prior to coming into force of the Benami
Act were same. However, it was held that the Benami Act prohibited the
person from instituting a suit after the Benami Act came into force, in
respect of the transactions prior to the Benami Act.
Further in paragraph 10, the Bombay High Court relying on the
decision of R. Rajagopal Reddy case cited (supra), expressed an opinion
that “though the Competition Act is not retrospective, it would cover all the
agreements covered by the Act though entered into prior to the
commencement of the Act and sought to be acted upon”.

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